Unless the context indicates otherwise, the terms “we,” “our,” and “us” used in this report refer to KB Home, a Delaware corporation, and its subsidiaries.

Accounting Standards Update No. 2021-01, “Reference Rate Reform (Topic 848): Scope” (“ASU 2021-01”), which

We have identified 5five operating reporting segments, comprised of 4four homebuilding reporting segments and 1one financial services reporting segment. As of February 28,August 31, 2022, our homebuilding reporting segments conducted ongoing operations in the following states:

Our homebuilding reporting segments are engaged in the acquisition and development of land primarily for residential purposes and offer a wide variety of homes that are designed to appeal to first-time, first move-up and active adult homebuyers. Our homebuilding operations generate most of their revenues from the delivery of completed homes to homebuyers. They also earn revenues from the sale of land.

Our financial services reporting segment offers property and casualty insurance and, in certain instances, earthquake, flood and personal property insurance to our homebuyers in the same markets as our homebuilding reporting segments, and provides title services in the majority of our markets located within our Southwest, Central and Southeast homebuilding reporting segments. Our financial services reporting segment earns revenues primarily from insurance commissions and from the provision of title services.

We offer mortgage banking services, including residential consumer mortgage loan (“mortgage loan”) originations, to our homebuyers indirectly through KBHS Home Loans, LLC (“KBHS”), our unconsolidated joint venture with GR Alliance Ventures, LLC (“GR Alliance”). We and GR Alliance each have a 50.0% ownership interest, with GR Alliance providing management oversight of KBHS’ operations.

Our reporting segments follow the same accounting policies used for our consolidated financial statements. The results of each reporting segment are not necessarily indicative of the results that would have occurred had the segment been an independent, stand-alone entity during the periods presented, nor are they indicative of the results to be expected in future periods.

The following tables present financial information relating to our homebuilding reporting segments (in thousands):

We compute earnings per share using the two-class method, which is an allocation of earnings between the holders of common stock and a company’s participating security holders. Our outstanding nonvested shares of restricted stock contain non-forfeitable rights to dividends and, therefore, are considered participating securities for purposes of computing earnings per share pursuant to the two-class method. We had no other participating securities at February 28,August 31, 2022 or 2021.

For the three-month and nine-month periods ended February 28,August 31, 2022 and 2021, no outstanding stock options were excluded from the diluted earnings per share calculations. Contingently issuable shares associated with outstanding performance-based

Land under development at February 28,August 31, 2022 and November 30, 2021 included land held for future development or sale of $52.9$53.3 million and $45.2 million, respectively.

Interest is capitalized to inventories while the related communities or land parcels are being actively developed and until homes are completed or the land is available for immediate sale. Capitalized interest is amortized to construction and land costs as the related inventories are delivered to homebuyers or land buyers (as applicable). In the case of land held for future development and land held for sale, applicable interest is expensed as incurred.

Each community or land parcel in our owned inventory is assessed on a quarterly basis to determine if indicators of potential impairment exist. We record an inventory impairment charge on a community or land parcel that is active or held for future development when indicators of potential impairment exist and the carrying value of the real estate asset is greater than the undiscounted future net cash flows the asset is expected to generate. These real estate assets are written down to fair value, which is primarily determined based on the estimated future net cash flows discounted for inherent risk

from outside parties, executed sales contracts, broker quotes or similar information.

We evaluated 1 active community for recoverability asAs of February 28,August 31, 2022 with a carrying value of $6.6 million. As ofand November 30, 2021, no active communities or land parcels with indicators of potential impairment were identified. As a result, no active communities or land parcels were evaluated for recoverability. In addition, werecoverability as of these dates. We evaluated land held for future development for recoverability as of both February 28,August 31, 2022 and November 30, 2021.

Based on the results of our evaluations, we recognized no inventory impairment charges of $2.6 million for both the three months and nine months ended February 28,August 31, 2022 and $3.6 millionrelated to a parcel of such chargesland previously held for future development that we plan to sell. For the three months and nine months ended February 28, 2021. TheAugust 31, 2021, we recognized inventory impairment charges for the 2021 first quarterof $6.3 million and $9.9 million, respectively, that reflected our decisions to make changes in our operational strategies aimed at more quickly monetizing our investment in certain communities by accelerating the overall pace for selling, building and delivering homes therein, including communities on land previously held for future development.

The following table summarizes significant quantitative unobservable inputs we utilized in our fair value measurements with respect to the impaired communities written down to fair value:

Our inventory controlled under land option contracts and other similar contracts is assessed on a quarterly basis to determine whether it continues to meet our investment return standards. When a decision is made not to exercise certain land option contracts and other similar contracts due to market conditions and/or changes in our marketing strategy, we write off the related inventory costs, including non-refundable deposits and unrecoverable pre-acquisition costs. Based on the results of our assessments, we recognized land option contract abandonment charges of $.2$5.9 million for the three months ended February 28,August 31, 2022 and $.4$6.8 million for the nine months ended August 31, 2022. For the three months and nine months ended February 28, 2021.August 31, 2021, we recognized land option contract abandonment charges of $.4 million and $1.3 million, respectively.

Due to the judgment and assumptions applied in our inventory impairment and land option contract abandonment assessment processes, and in our estimations of the remaining operating lives of our inventory assets and the realization of our inventory balances, particularly as to land held for future development, it is possible that actual results could differ substantially from those estimated.

consideration for the right to purchase land in the future, usually at a predetermined price. We analyze each of our land option contracts and other similar contracts under the variable interest model to determine whether the land seller is a VIE and, if so, whether we are the primary beneficiary. Although we do not have legal title to the underlying land, we are required to consolidate a VIE if we are the primary beneficiary. As a result of our analyses, we determined that as of

In addition to the cash deposits presented in the table above, our exposure to loss related to our land option contracts and other similar contracts with third parties and unconsolidated entities consisted of pre-acquisition costs of $37.9$36.6 million at February 28,August 31, 2022 and $38.1 million at November 30, 2021. These pre-acquisition costs and cash deposits were included in inventories in our consolidated balance sheets.

For land option contracts and other similar contracts where the land seller entity is not required to be consolidated under the variable interest model, we consider whether such contracts should be accounted for as financing arrangements. Land option contracts and other similar contracts that may be considered financing arrangements include those we enter into with third-party land financiers or developers in conjunction with such third parties acquiring a specific land parcel(s) on our behalf, at our direction, and those with other landowners where we or our designee make improvements to the optioned land parcel(s) during the applicable option period. For these land option contracts and other similar contracts, we record the remaining purchase price of the associated land parcel(s) in inventories in our consolidated balance sheets with a corresponding financing obligation if we determine that we are effectively compelled to exercise the option to purchase the land parcel(s). As a result of our evaluations of land option contracts and other similar contracts for financing arrangements, we recorded inventories in our consolidated balance sheets, with a corresponding increase to accrued expenses and other liabilities, of $11.9$7.1 million at February 28,August 31, 2022 and $26.5 million at November 30, 2021.

As of both February 28,August 31, 2022 and November 30, 2021, we had investments in 6six homebuilding unconsolidated joint ventures. The following table presents combined condensed information from the statements of operations for our homebuilding unconsolidated joint ventures (in thousands):

The following table presents combined condensed balance sheet information for our homebuilding unconsolidated joint ventures (in thousands):

The following table presents our lease right-of-use assets and lease liabilities (dollars in(in thousands):

Our income tax expense and effective tax rate for the three months ended February 28,August 31, 2022 reflectedincluded the favorable impactsimpact of $2.2 million of excess tax benefits related to stock-based compensation and $.2$15.3 million of federal tax credits we earnedrecognized primarily from building energy-efficient homes, partiallypartly offset by $1.7$2.9 million of non-deductible executive compensation expense under Internal Revenue Code Section 162(m). Our income tax expense and effective tax rate for the three months ended February 28,August 31, 2021 reflected the favorable impacts of $3.5$21.5 million of federal tax credits we recognized from building energy-efficient homes, partly offset by $2.5 million of non-deductible executive compensation expense.

For the nine months ended August 31, 2022, our income tax expense and effective tax rate included the favorable impacts of $16.1 million of federal tax credits we recognized primarily from building energy-efficient homes and $2.2 million of excess tax benefits related to stock-based compensation, partly offset by $6.8 million of non-deductible executive compensation expense under Internal Revenue Code Section 162(m). Our income tax expense and $2.7effective tax rate for the nine months ended August 31, 2021 reflected the favorable impacts of $39.0 million of federal tax credits we earnedrecognized primarily from building energy-efficient homes and $3.9 million of excess tax benefits related to stock-based compensation, partly offset by $1.4$5.8 million of non-deductible executive compensation expense.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was enacted into law. The federal energyIRA contains significant tax creditslaw changes, including a corporate alternative minimum tax of 15% on adjusted financial statement income for applicable corporations, and a 1% excise tax on stock repurchases after December 31, 2022. If applicable, the three months ended February 28, 2022 and 2021 resulted from legislation enacted in December 2020 and earlier periods.corporate alternative minimum tax will not be effective for us until our fiscal year ending November 30, 2024. The IRA also extends the federal tax credit for building new energy-efficient homes for homes delivered from January 1, 2022 (retroactively) through December 31, 2032, as well as modifies and increases it starting in 2023. Previously, the federal tax credit expired for homes delivered after December 31, 2021. The federal energy tax credits we recognized in the three-month and nine-month periods ended August 31, 2022 reflected the impact of the recent extension under the IRA. We are currently evaluating the other potential effects of the IRA on our consolidated financial statements.

The Coronavirus Aid, Relief, and Economic Security Act, enacted on March 27, 2020, provided an Employee Retention Credit (“ERC”), which iswas a refundable payroll tax credit that encouraged businesses to keep employees on the payroll during the COVID-19 pandemic. Eligible employers could qualify for up to $5,000 of credit for each employee based on certain wages paid after March 12, 2020 and before January 1, 2021. Based on our evaluation of this provision and the significant pandemic-related impacts on our operations in 2020, we recognized an ERC of $4.3 million as an offset to payroll tax expenses within selling, general and administrative expenses in our consolidated statements of operations upon filing for the refund in the 2021 first quarter. We received the refund in the 2021 fourth quarter.

the suspension of California NOL deductions did not have an impact on our income tax expense for the three months or nine months ended February 28,August 31, 2022, it contributed to the year-over-year increase in the amount of taxes we paid in this period.these periods.

Our deferred tax assets of $190.4$173.7 million as of February 28,August 31, 2022 and $194.8 million as of November 30, 2021 were each partly offset by a valuation allowance of $17.4 million. The deferred tax asset valuation allowances as of February 28,August 31, 2022 and November 30, 2021 were primarily related to certain state NOLs that had not met the “more likely than not” realization standard at those dates. Based on the evaluation of our deferred tax assets as of February 28,August 31, 2022, we determined that most of our deferred tax assets would be realized. Therefore, no adjustments to our deferred tax valuation allowance were needed for the threenine months ended February 28,August 31, 2022.

We will continue to evaluate both the positive and negative evidence on a quarterly basis in determining the need for a valuation allowance with respect to our deferred tax assets. The accounting for deferred tax assets is based upon estimates of future results. Changes in positive and negative evidence, including differences between estimated and actual results, could result in changes in the valuation of our deferred tax assets that could have a material impact on our consolidated financial statements. Changes in existing federal and state tax laws and corporate income tax rates could also affect actual tax results and the realization of deferred tax assets over time.

The carrying amounts of our senior notes listed above are net of unamortized debt issuance costs and premiums, which totaled $10.0$13.7 million at February 28,August 31, 2022 and $10.3 million at November 30, 2021.

Our obligations to pay borrowings under the Credit Facility are guaranteed on a joint and several basis by our Guarantor Subsidiaries. The amount of the Credit Facility available for cash borrowings and the issuance of letters of credit depends on the total cash borrowings and letters of credit outstanding under the Credit Facility and the maximum available amount under the terms of the Credit Facility. As of February 28,August 31, 2022, we had $250.0$350.0 million of cash borrowings and $8.6$6.7 million of letters of credit outstanding under the Credit Facility. Therefore, as of February 28,August 31, 2022, we had $831.4$733.4 million available for cash borrowings under the Credit Facility, with up to $241.4$243.4 million of that amount available for the issuance of letters of credit.

The indenture governing our senior notes does not contain any financial covenants. Subject to specified exceptions, the indenture contains certain restrictive covenants that, among other things, limit our ability to incur secured indebtedness, or engage in sale and leaseback transactions involving property above a certain specified value. In addition, the indenture contains certain limitations related to mergers, consolidations, and sales of assets.

As of February 28,August 31, 2022, we were in compliance with the applicable terms of all of our covenants and other requirements under the Credit Facility, the Term Loan, the senior notes, the indenture, and the mortgages and land contracts due to land sellers and other loans. Our ability to access the Credit Facility for cash borrowings and letters of credit and our ability to secure future debt financing depend, in part, on our ability to remain in such compliance.

As of February 28,August 31, 2022, principal payments on senior notes, mortgages and land contracts due to land sellers and other loans are due during each year ending November 30 as follows: 2022 – $353.2$2.6 million; 2023 – $351.7$350.9 million; 2024 – $0;$1.0 million; 2025 – $0;$.4 million; 2026 – $0; and thereafter – $990.0 million.$1.34 billion.

Fair value measurements of assets and liabilities are categorized based on the following hierarchy: